The New Zealand dollar is headed for a 1.7% weekly decline against its Australian counterpart after the local labour market shows major signs of deterioration and the Reserve Bank of Australia keeps interest rates on hold.

The kiwi traded at 78.30 Australian cents at 5pm in Wellington from 78.49 cents yesterday. It was at 81.61 US cents from 81.67 cents yesterday and is poised for a 1% weekly decline against the greenback.

New Zealand's currency underperformed its Australian counterpart this week after a 13-year high unemployment rate stoked bets the Reserve Bank will cut rates, while Australia's central bank kept its benchmark rate on hold.

Investors have previously rallied behind the kiwi on the expectation interest rate differentials will start moving in New Zealand's favour. The RBA today cut its growth forecast for 2013 to year-average GDP growth of 2.25% to 3.25% in 2013, down from its August estimate of 2.75% to 3.25%.

"We've seen a lot of the momentum taken out of the kiwi/Aussie cross over the last couple of weeks," says Dan Bell, currency strategist at HiFX in Auckland.

"Australia still has challenges and the RBA is more likely to cut rates over the next few months than the RBNZ", which means interest rate differentials should move back in the kiwi dollar's favour, he says.

Risk-sensitive currencies, such as the Australian and New Zealand dollars, have been under pressure this week as investors get nervous about the so-called "fiscal cliff' of $US600 billion of tax hikes and spending cuts for the US federal government.

That has put pressure on New York stock markets, with the Standard & Poor's 500 index ending its bull-run and dropping to a three-month low below 1400.

"The uncertainty looks at more risk aversion, which will be negative for the New Zealand against the US dollar," Mr Bell says.

Local data showed a pick-up in New Zealand house prices and sale volumes and an increase in retail spending on electronic cards.

The trade-weighted index fell to 72.98 from 73.11 yesterday, and is poised for a 1.1% weekly decline.

The kiwi dropped to 64.90 yen from 65.13 yen yesterday and declined to 63.87euro cents from 63.99 cents. It fell to 50.96 British pence from 51.07 pence yesterday.

(BusinessDesk)

This article is tagged with the following keywords. Find out more about MyNBR Tags